Successful traders keep a journal

The Opening Print

Happy Friday! On Fridays, some traders still use an old wisdom called the Friday Rule or sometimes the Monday effect. It states that if Friday has an uptrend and higher close, then Monday will continue that trend up. Paul Tudor Jones, one of the traders interviewed in Jack Schwager’s The Market Wizards, said that he believed it and used it, because he found after years of trading that it had been true most of the time during those years.

How did he finally realize it? He looked through his trading journal, which he had kept faithfully every day. The journal allowed him to see patterns over time, not just in market behavior but in his own emotional responses.

Hidden patterns revealed

A trading journal can help you see things like:

  • You lose money when you wait to enter a trade rather than pull the trigger as soon as the market meets your conditions.
  • You are not wrong about trends. You are just often right, but early. You do better when you wait a while.
  • You lose money if you’re in the middle of a family conflict. It’s more profitable not to trade and work on resolving the conflict.

It also allows you to look at all the trades that went well because you thought you were lucky. You might find that they all fit a pattern and luck had nothing to do with it. You just unconsciously executed that winning mental pattern and you should do so all the time.

You see patterns over time, of things that worked and didn’t work. What you might see after years of experience, you can figure out in months or weeks instead.

You see that you usually lost when you second-guessed yourself or veered from your plan. So you decide to trust your instincts and planning. You see that you get worse the more indicators you have on screen, so you turn them off and look at price and volume and nothing else. (People have become billionaires that way.) You see that Fox Business News is best enjoyed with the sound off. You hit the mute button. Or switch to the Discovery Channel.

You even see that you do better on days when you shave and shower (legs, face, as you like). Or light incense. Or eat a good breakfast. Or do your morning pushups. I use a great phone app called 100 pushups. I’m still only at 20 in a row, but I feel like James Bond all day. Hey, if it makes you better, do it and be better.

Software tools

One simple way to keep a journal is It sends you a daily email asking about your day. You reply to it as you would any other email and it is saved in a secure, private account only you know the password to. Over time, you get an elegant and fascinating log of your life and trading. I often think, “Wow, it’s been a month since that happened.”

A more powerful and well-loved tool is Evernote. When I taught at the University of Florida, I always asked prospective teaching assistants if they used Evernote. If they didn’t, I usually didn’t hire them. Its users are as fanatical about it as Apple fans. It has web and desktop clients, phone and iPad versions, and can capture anything you want to remember: links, documents, audio, video, and images. Pass a restaurant you want to try later? Snap a photo on your phone and Evernote will find it on Yelp for you.

You can clip parts of your screen, like charts or the P/L box. Then you can write or dictate notes about the chart or even draw on it. And it is saved in your encrypted, private account in the cloud, accessible from anywhere. Trust me, you’ll soon wonder how you ever got along without it. And it’s free.

A holy grail that’s real

Markets are places where we buy and sell different levels of risk and uncertainty. No matter what holy grail you think you have, it’s still a game of probabilities. The only thing you can control is your own mind. A trading journal lets you learn how your mind works and learn to trust it. Just as listening to someone and giving them your full attention is an act of great respect, listening to your own mind and attending closely to it is an act of great self-respect. A journal teaches you to trust your mind and gently but firmly direct it. It gives you unshakeable self-confidence.

Even if you start off slow, just write a few lines every day or save one chart. The important thing is not eloquent writing, but developing a consistent habit of learning from that day’s trading. All successful traders know that the key is not the occasional huge win, but consistently applying a method you can trust. That starts by working with a mind you can trust, because you know it. Your mind and emotions must not be your enemy, sabotaging your trades. They must be your best friends and allies.

You’ve heard me say before that there is no holy grail, that the holy grail is you. Over time, you’ll find that holy grail in the pages of your journal.

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Vikram Rangala (68 Posts)

Vikram is a futures and options trader with 16 years of experience. He previously taught for the University of Florida's Warrington College of Business and Honors Program. He is a regular participant in the MrTopStep IM-Pro Trading Room.

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